American Airlines has reached an agreement with the US Treasury Department for the third round of government support. (Photo: Getty Images)

American Airlines agrees to the third round of government support

On Monday, April 26th, American Airlines announced an agreement with the United States Department of Treasury to a third round of financial aid under the Payroll Support Program (PSP). The third extension of the PSP since the start of the crisis, this round was funded under the American Rescue Plan Act of 2021.

American Airlines, together with its wholly-owned subsidiaries, Envoy Air, Piedmont Airlines, and PSA Airlines, will receive a total of $3,310.9 million ($3.3 billion). The first installment, equal to $1,655.4 million (~$1.7 billion), was paid out to the airline on April 23rd.

Under the terms of the agreement, American and its wholly-owned subsidiaries must use the money to pay employee wages, salaries, and benefits. The airline cannot conduct any involuntary furloughs and reductions in pay rates and benefits through at least September 30th, 2021. There are also restrictions on share repurchases and dividend payouts until September 30th, 2022, and restrictions on certain executive compensation through April 1st, 2023.

American will not furlough any of its employees involuntarily until at least September 30th. (Photo: Getty Images)

The other two rounds

The most round of government support was arguably the first one. As the nature of the crisis became clear, Washington D.C. was looking at ways to support the country’s industries. US airlines and their respective lobbying organizations pushed politicians hard for industry support. Under the first round, American Airlines received around $5.8 billion in payroll support from the Treasury.

The first round of support gave the Department of Transportation (DOT) the power to mandate minimum airline frequencies and city services. US carriers of all sizes sought exemptions, but the DOT was strict about which ones it allowed. American Airlines did receive service exemptions, though only to a handful of destinations.

The second round of support came in a relief bill passed in December. This left a few months of a gap where the airline industry did not receive support. However, industry lobbying paid off when the second round of support was officially passed just a few days before 2020 ended.

The third installment under the second round of support was only paid out on April 23rd, in the sum of $463 million. In the aggregate, round two of the PSP benefited the carrier to the tune of $3.5 billion, which was higher than initially expected.

Government support was crucial in allowing American to maintain adequate staffing to support a quick ramp-up of capacity as Americans return to the skies. (Photo: Getty Images)

Support is crucial for airlines

American Airlines has a large staff that it uses to run a heavy domestic and long-haul international schedule. The problem for the airline for much of 2020 was that it did not need its full staffing levels. Government support allowed airline employees to keep their jobs through a difficult 2020 and early 2021.

American Airlines and its executives viewed industry support as necessary to keep infrastructure in place to support the industry and country’s recovery. The carrier’s CEO, Doug Parker, was one of the leading airline executives in the US who pushed for industry support. That support has been crucial for airlines that spent much of 2020 simply trying to survive.

Payroll support helped Southwest Airlines turn a profit in the first quarter of 2021. American Airlines also benefited, as it narrowed its net loss for the first quarter to $1.25 billion. With salaries for employees paid, American Airlines can fly its jets at lower financial risk, which is one reason why the airline has been increasing capacity and flying some of its routes with nearly empty loads, but with a focus on cargo. The airline is focused on the future with a “Green Flag Plan” that will see the airline out of the crisis, and government support will have been a crucial part of the carrier’s ability to ramp up capacity.

Cre: Simple Flying

Nguyen Xuan Nghia – COMM